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Will the Mega Spectrum Auction be a Flop Show?
Jul 1, 2016

The government recently cleared the biggest ever telecom spectrum auction. The total value of the airwaves up for sale exceeds Rs 5,000 billion!

Historically, these auctions have largely been exercised by the well established players in the telecom industry. Companies such as Bharti Airtel, Vodafone and Idea Cellular have shelled out huge sums in order to succeeded in availing the spectrum license. The last spectrum auction in March 2015 was a big success. The government garnered bids of about Rs 1,100 billion. But things have completely changed in last one year.

Unlike last year, none of the telcos have to renew any of their spectrum soon. Thus, there is no compulsion to bid to ensure that their operations will continue. There's also the question of debt. Last year, the balance sheets of telcos were stretched. But they still had a little room left to borrow some more. This they certainly did, taking advantage of the government's new deferred repayment clause. The result? They got all the spectrum they wanted. But at the same time, pushed their leverage ratios to the limit. Under a gigantic debt burden of US$50-60 billion, telcos are in no position to repeat their extravagant bidding this time around.

The things have been more downhill than uphill for this sector since some time now. The government and the regulator have been milking the sector's resources for a while.

But this time around, one companies have lower appetite to finance these expensive auctions. And looking at the past auction, it seems very unlikely that the government's ambitious plans are going to succeed this year.

Data Source: RBI, Ministry of Information and Telecommunication Technology
* Expected from Auction

This Chart Of The Day was published in The 5 Minute WrapUp - The Only Stakeholder Who Benefits from India's Public Sector

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